Edited version of your written advice

Authorisation Number: 1012921907917

Date of advice: 9 December 2015

Ruling

Subject: Travel expenses - meals

Question:

Does the substantiation exception for travel allowance expenses apply if your deduction claim does not exceed the reasonable amount, you include the allowance you received in your tax return and you have incurred the amount claimed?

Answer:

Yes.

This ruling applies for the following period:

Year ended 30 June 2015

The scheme commenced on:

1 July 2014

Relevant facts

You are required as part of your employment to occasionally travel interstate for your employer.

You spent XX nights away from home on work trips.

Your employer paid your airfares and accommodation expenses.

You were paid a per diem amount of $XX to cover meals for the nights you travelled away from home.

The allowance amount of $XXXX was not shown on your PAYG summary.

You expended more than the allowance for the nights you were away.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 15-2

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Subsection 900-30(2).

Income Tax Assessment Act 1997 Subsection 900-30(3).

Income Tax Assessment Act 1997 Section 900-50.

Reasons for decision

Travel allowance

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary and statutory income derived from all sources during the income year. However, if an amount is exempt income, it is not assessable income (section 6-15 of the ITAA 1997).

Under section 15-2 of the ITAA 1997 your assessable income includes the value to you of all allowances, gratuities, compensations, benefits, bonuses and premiums received in respect of your employment, either directly or indirectly.

Treatment of travel allowances may be different depending upon what the employer has included on the payment summary. For example, if a taxpayer receives a bona fide travel allowance which is at or below the Commissioner's reasonable rates and has incurred expenses of at least the allowance amount and the allowance amount is not shown on the payment summary, the amount is not required to be included as assessable income and no deduction is available to the taxpayer.

A taxpayer can elect to include a travel allowance which has not been shown on their payment summary in their assessable income and claim a deduction for the travel expenses they have incurred.

Travel expenses-meals

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. 

A deduction is only allowable if an expense:

• is actually incurred,

• meets the deductibility tests and

• satisfies the substantiation rules.

Division 900 of the ITAA 1997 sets out the substantiation requirements for claiming expenses. There are exclusions available for certain work expenses within the substantiation provisions. However, even if the substantiation requirements do not apply, you must still have incurred the relevant expenditure in order to claim a deduction. For example, even though a taxpayer may claim a total of $300 for work expenses without substantiation, they would only be entitled to a deduction of $50 if they only spent $50 on work expenses.

A deduction is allowable for travel expenses incurred by an employee when travelling in the course of employment providing the necessary substantiation requirements are met. 

As a general rule, written evidence is required to substantiate any expense you wish to claim as a deduction. 

Subdivision 900-B of the ITAA 1997 sets out the substantiation requirements for work expenses and provides for exceptions in certain circumstances. 

Section 900-50 of the ITAA 1997 provides an exception for domestic travel allowance expenses. 

Subsection 900-30(2) of the ITAA 1997 states that a travel allowance expense is a loss or outgoing you incur for travel that is covered by a travel allowance.

Subsection 900-30(3) of the ITAA 1997 states that a travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee and that are losses or outgoings for accommodation or for food or drink or are incidental to the travel.

Taxation Ruling TR 2004/6 discusses the conditions when the above substantiation exception applies. For travel allowance expenses to be considered for exception from substantiation the employee must be paid a bona fide travel allowance and the amount must be included in assessable income. A travel allowance that is not paid or payable to cover specific work related travel is not considered a travel allowance for the purposes of the exception from substantiation. For example, a fixed annual travel allowance amount, paid regardless of how often travel is actually undertaken, would not qualify for the exception from substantiation.

Furthermore, the amount of a bona fide travel allowance must be an amount that could reasonably be expected to cover meals or expenses incidental to the travel.

The Commissioner publishes reasonable amounts for accommodation, meals and deductible expenses incidental to travel. Taxation Determination TD 2014/19 sets out the relevant amounts that the Commissioner considers reasonable for the 2014-15 financial year.

What is considered to be a bona fide travel allowance depends on the facts of each case. In your case, you were paid an allowance of $XX per day. It is considered that the allowance you received from your employer falls within the definition of a travel allowance under subsection 900-30(3) of the ITAA 1997. Therefore, provided that you include the amount in your assessable income, you are entitled to rely on the exception from the substantiation provisions under section 900-50 of the ITAA 1997 to claim the expenses you incur up to the reasonable amount.

Please note that if a taxpayer relies on the exception from substantiation, they may still be required to show the basis for determining the amount of their claim, that the expense was actually incurred, and that it was for work-related purposes. What counts as evidence for a claim subject to the substantiation exception will vary according to individual circumstances and the nature of the expense.

If a taxpayer claims a deduction for more than the reasonable allowance amounts as set out by the Commissioner, the taxpayer cannot rely on the exception from substantiation; the taxpayer must substantiate their whole claim not just the excess amount above the reasonable allowance amount.